All of which is part of the reason I believe in tying up executive compensation in company stock, and requiring that it mostly remain there for a good long time. I’d say make them hang on to any stock/option for 7 years or so. Executives leave impacts that can last for years after they’re gone. They should not have the option of walking away and getting paid until the impact of their actions gets to play out in the long term.

-btc

Rereading this I think that a nice deeper explanation of what I mean may be helpful, and for it I am indebted to a commenter who pointed out that at some point assets were being priced as collectibles.

The starting notion is that one can price things under several different assumptions, and two typical ones used by accountants are “going concern” (based on the expected income derived from maintaining the asset) and “liquidation” (based on selling the asset as it is).

If house or stock prices were to double tomorrow, just like that, this would signal a (greater) switch from their pricing as a going concern to one of liquidation value.

And a somewhat anomalous one because the rule is that most capital is worth a lot more as a going concern than for liquidation. The exception is collectibles: a famous painting is worth very little as a going concern, but a lot for resale.

In other words a collectible, something called “not an economic good”, derives its pricing from perception, from mere scarcity in the mind (because for a painting canvas, paint, framed have very little value as say fuel and are not at all scarce).

Therefore that pricing depends on there being a collector to pay for that perceived value, that metaphysical scarcity. And the role of collector for those massive house and stock capital gains in the past 15 years were either first time buyers or lenders, and finally the Fed.

There is of course the argument that as collectibles houses and stocks became a lot scarcer not in absolute terms, but relatively to those other collectibles, dollars or yens, and thus an overbundance of credit in dollars and yens generated a portfolio realignment away from dollar/yen collectibles, decreasing the price of dollar/yen collectibles with respect to that of houses and stocks; indeed, but that transferred some of the “collectibleness” of dollars/yens to houses and stocks (as “inflation hedges” of sort).

«but house owners would have a lot more purchasing power all of a sudden over that same stock and production of goods and services. In particular those who would trade their house capital gains for cash.»

In other words paper capital gains main effect and purpose is redistributive.

Accordingly the fights about the various Paulson/Geithner plans have been about the redistributive effect of making good the losses of exactly whom by taking the purchasing power from whomever else.

The main fight has been between the asset owners who cashed in and those who did not; but they have now both agreed to shift the cost of making the latter whole on those who own little or no assets. Losers…

thanks for fleshing that out.

and, as always, thank you for thinking..

Therefore, the moral of the story is…humanity is a non-sustainable species.

Well, the bad thing is not that lots of money has been “lost”, but that lots of paper capital “gains” have been made to appear for a few years. Those paper capital “gains” did not correspond to any increase in value of those assets, but rather to manipulation and delusion.

Suppose that tomorrow all USA house prices doubled, adding several trillions to the wealth of the USA. Reread the preceding phrase again — how can a mere price doubling add to the wealth of a nation?

Suppose that tomorrow all USA house prices doubled, and the day after tomorrow they halved again: how much money would have been lost in that second day?

All that is achieved by asset price changes like that is to transfer wealth from those with fewer to those with more assets, and from those who don’t monetize their capital gains to those who do.

Because if house prices were to double tomorrow, the stock and production of real goods and services purchasable would be the same as before (let me ignore feedback loops), but house owners would have a lot more purchasing power all of a sudden over that same stock and production of goods and services. In particular those who would trade their house capital gains for cash.

In the past 15 (and arguably 30) years the American economy has been essentially continuously in a deep recession, with only the F.I.R.E. sectors generating theoretical GDP growth; and even that was largely a delusion, as over the cycle those sectors have not been profitable.

How comes stock prices and house prices boomed despite that?

«If no laws have been broken then those laws are not worth the paper they are written on.»

Ah plenty of laws have been broken, but not in the gigantic “loss” of money that you bemoan, but in the even more gigantic “gains” that preceded it. Every conceivable security law and trade law and insurance law and gaming law was broken to create such huge “gains” despite a recessionary environment.

«Pair that with an SEC who has no interest in prosecuting any body and you will find yourself here.»

But the SEC etc. cannot investigate and jail a very large part of the USA ruling class, that would be akin to a coup d’etat. Winners in America are as group above the law. Sure, a few will be thrown to the wolves.

But I am still waiting to see how many of the people who evaded dozens to hundreds of millions in income taxes by using backdated options (thus reclassifying income into capital gains) go to jail; but not even those are being thrown to the wolves.

And in part because in Real American winners are widely admired, and many know that in the same situation they would have scammed and cheated as much or more.

To be a clever or bullying crook is a widely admired trait in Real America, because getting ahead is all that matters. How can the SEC persecute the very icons of Real America, its heroes of “whatever it takes” culture of winning?

Real America celebrates Mozili, ONeal, Fuld, Cayne, Skilling, Nacchio, Greenberg, all those who made immense fortunes for themselves, whatever it took.

The baby-boom generation has sailed us off a fucking cliff.
The most protected class of individuals this country has ever raised and they have sold out every principal of this country for fucking greed.
They take responsibility for nothing. EVER
It’s not my fault
I was just following orders
What’s the meaning of ‘is’
George W Bush
If we can survive these traitorous bastards,
it will be a miracle.

“Spitzer added that any criminal action would not be against the company but against individuals….”the goals that would have been advanced by a criminal prosecution of the corporation — punishment, restitution, general deterrence and industry reform — will be better accomplished by criminal prosecution of individuals, adoption by the company of dramatically new business procedures, installation of new leadership, a full examination of prior wrongdoing and a pledge of restitution to those harmed.” ”

(from http://news.google.com/newspapers?id=tpsNAAAAIBAJ&sjid=EnEDAAAAIBAJ&dq=greenberg%20marsh%20mclennan&pg=4926%2C4167864)

sorry for the long link — but how cool is that google news interface !

IOW, the set-up was a set-up, and our “leaders” were/are Hitmen..

“It’s time we all came to grips with that.”

though, w/this: “worshipping at the alter of free market capitalism and money.” is, too True.

the ‘alter’ of …
http://www.thefreedictionary.com/alter

there has been no Free Market, no Capitalism, and, most seriously, no Money..

it’s been a Poli-Sci-Fi Fantasy, authored by Debt.